6/01/2009 @ 6:00PM

Crunch Time For Airbus

European Aeronautic Defense and Space
, the parent company of plane maker Airbus, has a history of announcing bad news in the month of June.

In June of 2005 and 2006, EADS announced the first delays to its now-infamous A380 double-decker “superjumbo,” which eventually led to the departure of French Co-Chief Executive Noel Forgeard. This year, June marks crunch time for another much-delayed Airbus project, the A400M military transport, as seven countries decide whether to let the program sink or swim.

The countries in question–Britain, France, Germany, Spain, Turkey, Belgium and Luxembourg–put in orders for 180 aircraft back in 2003, worth $28.3 billion, but the project is years overdue, and Airbus does not even have a clear target date yet for the plane’s maiden flight. The frustrated buyers are now within their rights under the terms of the contract to cancel their orders and ask for their money back, or to keep their orders and squeeze billions in penalty payments out of Airbus.

No wonder Airbus is frantically appealing for leniency before the buyers’ self-imposed June decision deadline. “Some 40,000 jobs throughout Europe are at stake with the A400M,” wrote Thomas Enders, Airbus’ chief executive, in an opinion piece published in the Financial Times on May 28. “We have asked the European partners in the program for a greater degree of realism in order to enable delivery of the aircraft we all want at a sensible price.”

Enders might just get what he wants this time. Few industry watchers think the A400M will be allowed to go under, with so much political capital riding on the project. EADS is Europe’s flagship defense company, and the A400M’s principal customers are European governments. Given that the most viable alternatives to the A400M are American-made, such as the Boeing C-17, they are unlikely to scrap the program and hand a clear victory to the United States.

“What the governments really want is to get a realistic timetable for delivery,” says Rupinder Vig, an analyst with Morgan Stanley. “The uncertainty is whether they need to get interim aircraft or not. The penalties could be waived or delayed–the nations themselves do not appear to want to change contract terms.”

There are some notable exceptions. Britain, arguably the most Atlanticist of the A400M’s European customer base, has admitted considering an order of C-17s as a contingency plan. This is not such a shock in itself–even France is reportedly looking at orders from Boeing and Lockheed-Martin to offset gaps from the A400M delay–but analysts think Britain is still the weakest link overall. Prime Minister Gordon Brown has only just given in to pressure and re-confirmed an order for another costly pan-European defense project, the Eurofighter, which may make Britain reluctant to keep backing the A400M as well.

And if Britain walks out or cuts its orders, there might also be a cut from Germany, one of the most vocal critics of the A400M delays. Germany’s deputy defense minister has been quoted in the German press as saying that cancellation is a “serious option,” though industry-watchers think it is unlikely to scrap its order outright.

So don’t expect a catastrophic announcement to emerge from the Paris Air Show in mid-June, when fresh news on the beleaguered A400M is expected to trickle out. The customers need to spruce up their aging fleet of military transports, and the A400M clearly serves that purpose. But the more important purpose it serves–and this may also apply to Eurofighter as well–is to keep workers in employment and the European defense industry strong. Any change in defense policy itself will be purely coincidental.

“Parochial interests trump national and global leadership almost every time,” wrote Richard Aboulafia, an analyst with Teal Group, in April.